Founded in January, 2000, Pragati Life Insurance Limited quickly became one of the most prominent insurance companies in the country. The company went public in 2005 and got listed in Dhaka Stock Exchange and Chattogram Stock Exchange.
With the digital transformation and economic development of the country, the insurance sector seems to have finally reached the point from where it can truly ascend to the next step and start to scale up. The growing middle class certainly opened up enormous possibilities for the sector that has been struggling to find its foothold in Bangladesh. Against that backdrop we talk to the Managing Director and CEO of Pragati Life Insurance Limited, Md Jalalul Azim.
FINTECH: Pragati started in the year 2000. What was the situation of the insurance industry then and how much it has evolved in the last 18 years?
We started our journey as one of the third generation insurance companies. As you know, after independence all companies except ALICO were Nationalized and made into one state owned company for life insurance, called “Jiban Bima Corporation”. ALICO (now MetLife) was allowed to sell new insurance from 1974. In life insurance, there were only two companies in Bangladesh from 1974 to 1985: Jiban Bima Corporation and ALICO. Government permitted private sector operation in 1985. Our sister company Pragati General started at that time. We called them first generation companies. The second generation came in the 90s and the third generation in 2000.
By 2000 the total numbers of life insurance companies were 17. Fierce competition started to affect professionalism in the sector. In my opinion, up to year 2000 the companies conducted operations professionally and ethically. After that unethical practices started to seep in. Unfortunately, at that time regulatory control was quite relaxed. The sector wasn’t under any specialized government body. Even though life insurance had great potentials, we couldn’t do a lot in this sector because of lack of professionalism and skilled Manpower as well as mistrust, image crisis and absence of competent Regulator. It further deteriorated in 2013/14 when Govt. allowed 14 more companies to play in this sector. However, one good thing did happen. Insurance used to be governed by the 1938 Act up until 2010. The government passed a new Act in 2010. Under that law new regulatory body “Insurance Development and Regulatory Authority.
(IDRA)” was formed in 2011 which started operation in 2011. But it had some limitations. They focused on regulations without framing Rules which were essential to regulate and streamline this sector. IDRA did not have enough Manpower to monitor 77 Insurance Companies. As a result, this sector suffered and experienced negative growth particularly around 2012/13. IDRA’s focus on monitoring only ignoring Development initiatives didn’t improve the situation during those early years. But later on Insurance Association, IDRA and Ministry of Finance combinely turned sharper focus on Development and Monitoring and things started to look up from 2017.
Pragati Life had been doing good since its inception till 2008. There was steady growth every year. Professionalism and compliance was there. But, unfortunately it fall into a trap of a vicious circle and all best practices vanished. Pragati suffered a lot in between 2008 to 2013. By the grace of Almighty, the new management under my leadership and with the prudent guidance of the Chairman and the Board the Company has turned around. Now, we are among top 8 in all parameters out of 31 life companies in Bangladesh.
This is a big sector, because we have around 16 crore people. I think life insurance has huge potential. But the business has to be done in a professional way. You have to think about reaching all people and benefiting them. The new regulatory body is working for developing the sector and doing it in a systematic way. Their strategy is to formulate the Rules / Regulations first and then move to proper execution. That’s a good sign.
I think recent initiatives taken by the government are really positive. In 2014 the government made the “Jatiya Bima Niti” for the first time in Bangladesh. We now have a thorough document containing government’s short, mid and long term plans and implementation strategies. This is a move toward a positive change. Now Govt. needs to be serious to make things happen.
FINTECH: There was a restriction in reinsuring, namely you couldn’t reinsure with foreign companies. It has to be done with Sadharan Bima. It was lifted later partially, but you still have to do 50 percent with the government company. Has that helped you since that was allowed?
There is no such restriction for life insurance. It is applicable for Non-Life. We do reinsure with foreign companies. Hundred percent of our reinsurance is with Munich Re, which is the No. 1 Reinsurance company in the world.
FINTECH: What are the main challenges now in this sector and why you feel regulatory strengthening is needed?
Building confidence, overcoming negative image, creating awareness / demand of insurance among mass people and Compliant Operation of Companies are the main Challenges. Govt, IDRA, Insurance Association must work together to increase Insurance penetration ( % of Premium to GDP) from existing 0.7% to 4% in near future.
Insurance Act 2010 needs about 50 rules and regulations for it to work. After legislation, you have to lay down the details with rules and regulations. For example, a set of rules and regulations were put out in 1958 based on the 1938 Act. So far, we have about 16 or 17 of such rules. We want the law to be complete first. The sooner this is done the better. In addition, there are some Clauses in the Act 2010 which needs revision to meet growing demand of time. Framing of Rules / Regulations on Micro Insurance, Bancassurance, Takaful, Corporate Agency, Brokerage etc. are required to expand Insurance market in Bangladesh.
If this is done then unethical practices will come down. Companies will be forced to develop professionalism because the law will act as a compelling force.
The “Jatiya Bima Niti” has a very well laid out framework. It identifies what are the issues, how to and who will resolve them. If this is implemented then the sector will really move forward.
FINTECH: You went to IPO in 2005. What has been the effect of this?
Our company was formed with paid up capital of Tk 3 crore. Now it is more than Tk 10 crore. Our Life Fund is more than 500 Crore as at end of 2017. And since IPO we have been disbursing dividend every year. Last year we paid 25 percent dividend. Naturally, after IPO our market is growing and we are declaring dividend. We are also at the second or third position always in terms of share price in the Stock Market among listed life insurance companies.
FINTECH: You have two segments in your main product. One is group life and health and the other is individual life and health. What growth has been like in these segments?
We are number one in Group Business. Last year we closed Tk 85 crore in group insurance premium. Even though the potential is high, the players in the corporate market are limited. There are 31 life insurance companies. But there aren’t many in groups. Corporate clients obviously are very careful about what they purchase. So, the competition is tough. As a result we have to lower the premium rate every year to retain business. Overall, we are in the leading position. We are trying to grow and if the government initiatives are realized then the business in group will increase.
The government rule is that companies with more than 100 employees it has to take out group insurance. So, many organizations are now taking out insurance, which they didn’t do before. This is happening because of tightening of compliance. I think that the government has a big role to play and it is actually the government’s responsibility to ensure public safety and security.
On the contrary, some companies create their own fund instead of coming under insurance. As a result, they compensate the employee in case of death from their fund. But this is the domain of insurance companies. This is not practiced in developed countries. Recently, for example, BGMEA started to give out compensation from its own ‘kollyan tohobil’. It used to take insurance coverage, even though in limited scale. NGOs are also deducting amount from the loans given out to members. If these are not brought under insurance, then insurance companies will not be able to contribute to the GDP. Having a formal route to give out insurance to people will also raise awareness about how insurance policy works. People will start to see the benefits.
FINTECH: People do have a negative impression about life insurance, and probably insurance as a whole. Do you have any specific plans to tackle this?
Yes, people had a negative view and still do. However, this is not necessarily much different internationally. It’s just more intense in Bangladesh. In the developed economies people are compelled to take out insurance. Since we don’t have that here, there has been no formal path to building confidence. I would say though, that we also share blame for this.
One thing that creates grievances is the perception that people don’t get paid against their claims. Naturally, people have a negative reaction to that. Also negative word of mouth played a big part in this. We are trying to create awareness about good practice in the insurance sector. We are also encouraging other companies to do the same. We are also pushing for initiative so that companies can’t get away without paying claims and so that there is no room for delay.
In life insurance we sell our policy mainly through agents. We investigate if a life policy holder dies within two years of taking out the insurance, as sometimes people purchase a policy knowing they don’t have more than a year or two to live. If we find in investigation that it was deliberately purchased with knowledge of imminent death then obviously we can’t pay the claim. Because of a lack of understanding of the policy people often think this is wrong on our part, even though it is clearly laid out in the conditions. In non-life, however, there is government designated survey that is mandatory. They carry out a survey in non-life claims and provide a report. We can’t stray from the assessment in their report.
Sometimes some surveyors play foul with the policy holder. We have no control over that. It’s controlled by the government. If the report gives the policy holder assessment that he should get one lakh taka, then we can’t pay more than that even though the actual loss is more than one lakh. The policy holder ultimately blames the Insurance Company though the company had no part in the assessment and insurer can’t go outside of the set limit of the policy. I think efforts need to be taken both from companies and the government to address this.
FINTECH: One of the main components for scaling up is digital transformation. What is your situation regarding that?
There is no way around this. You have to have digital transformation. As you know, IT is expensive, which is why you can’t take all the requisite steps at once. For Pragati, we have already started working with a number of different software systems. We are working internally and making our operation computerized. Now our Policy Owners can pay online, see their Policy status through Website / Mobile. We are now settling Maturity / Death Claims through mobile Banking.
We have also automated premium collection. We have agreements with bKash, Rocket, EFTN, etc – so that customers can pay the premium through mobile banking. We have started online payment gateway. We also have direct debit. Agent Banking has been also made a part of it. Our premium reminders are now available through SMS.
We are moving toward integrated software. We are also working on our 24/7 Call Centre. Our IT team is working on online policy. We are planning to provide services through Apps as well, in addition to the web.
FINTECH: When do you envision the sector might take off and really take advantage of the potential?
We have a large population living in poverty. 25 percent live under the poverty line. That is not a small number. Meanwhile, the insurance procurement cost is higher in Bangladesh compared to a lot of other countries. Frankly, the premium that we draw on the first year for life insurance is spent for cost completely. About 70 percent goes to those that procure the business. We want to reach the population below the middle class, but there is no way we can make that cost effective.
So the solution is offering micro insurance through effective partnership models, otherwise it’s just impossible. There are examples of successful partnership models. For that government should allow others to work as corporate agents. Banking is a big sector for example. This can be utilized and it’s being done in India and many other countries. Banks can effectively work as agents of insurance companies. This will allow us to reach their broad customer base. If we want to reach them independently then the cost will be too high. Similar is the case with MFIs / NGOs. That’s why we want regulations for Alternative Distribution Channels. Bangladesh Bank and MRI needs to come on board for this, as they are the regulatory body for the banks and MFIs. To be honest, without these steps, the way we are moving now, we won’t reach the mass people.
You also need to have promotional campaigns so that people feel the need for insurance. In a way we are lucky that a lot of the promotion is done for free because of Indian TV channels running in Bangladesh, which carry a lot of ads by insurance companies and IRDAI in India.
Nevertheless, the fact remains we are not doing the necessary promotions.
I also think what will really help our cause is becoming really prompt in paying claims and without any hassle. If we can do this people will start to think positively about insurance. We have a product called ‘Nirvoy Life’ which we provide to Grameenphone sim users. We try to be very prompt and there are instances when we paid claims within 24 hours.
South Asian countries have the highest growth opportunities for insurance. For Life Insurance Industry, raw material is people. With economic development people now have more purchasing power. People are more educated than before and their life style is gradually improving. If we can take the right initiatives then we can get output and truly use the potential.